Finance Minister Nirmala Sitharaman stated on Saturday that the country requires a new model for bilateral investment treaties (BITs), claiming that the 2016 template is “inadequate” for meeting countries’ needs and that investment treaties should be kept separate from future free trade agreements.
Sitharaman, speaking at the launch of the first postgraduate certificate course on international commercial and investment treaty arbitration, emphasised that incorporating BITs into free trade agreements (FTAs) frequently reduces them to “a negotiating card,” undermining their primary purpose.
“Issues related to BIT are so unique to the sovereign that we believe BIT should be negotiated separately rather than as part of an FTA agreement,” said the finance minister, who mentioned an overhaul was in the works while presenting the Union Budget on February 1.
The announcement comes at a critical time for India as it negotiates free trade agreements with major economies such as the United Kingdom and the European Union, both of which prefer comprehensive agreements that include both trade and investment provisions.
Sitharaman noted that even developed economies are moving away from “old-fashioned” BITs that prioritised investor protection but “inadvertently” resulted in situations where sovereign space was “completely left open and loose,” failing to adequately protect national interests.
Drawing on the experiences of emerging economies and the Global South, including India, the minister stated that these countries have “borne the brunt” of such treaties as they encroached upon their policy space. She stated that the proposed model BIT would “restore what is the right of the Parliament” and sovereign authority, particularly in taxation matters.
The minister referred to her recent budget statement, which confirmed India’s signing of bilateral investment treaties with two countries in 2024. “As proposed in the Interim Budget… the current model BIT will be revamped and made more investor-friendly,” she stated in her February 1 Budget speech, adding that the new framework would help reduce arbitration costs.
Sitharaman cited United Nations Conference on Trade and Development (UNCTAD) data to reveal that of 1,368 registered investment treaty cases, approximately 70% are pursued against developing countries under old-generation treaties. She expressed concern that wealthy commercial interests would purchase arbitration cases and pursue lengthy legal battles across jurisdictions, putting sovereign states at a disadvantage.
“The average amount sought by investors in Investor-State Dispute Settlement (ISDS) cases is $1.1 billion, which remains a considerable burden for the Global South,” says Sitharaman. She pointed out that corporations have used ISDS mechanisms to challenge government policies, environmental regulations, and public-interest laws.
The minister expressed concern that arbitrators frequently disregard host countries’ judicial decisions. “While arriving at an arbitration outcome, even findings related to crimes like fraud and corruption which have been established through the court of law in the host country, put the states in a conflicting position to accept the award,” according to her.
Looking ahead, Sitharaman outlined her vision for future investment treaties, emphasising the importance of giving nations enhanced regulatory powers while also providing clear guidance to arbitrators. “I strongly believe, moving forward, the framework of investment treaties should capture: National interests in relation to regulatory powers, strengthened guidance for arbitrators in resolving disputes, keeping in mind nations’ interests and circumstances as well,” she told the crowd.
